XCHRX KAM KEE CONSTRUCTION CO. (a firm) AND ANOTHER v. UP RIGHT CONSTRUCTION CO. LTD.

HCCON 8/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. This is an application by the plaintiffs for summary judgment against the defendant.

2. On 10 November 1995, the first plaintiff and the defendant entered into a contract relating to the installation of manhole covers by the first plaintiff at the new airport (the first contract).

3. In June and September 1996, the first plaintiff submitted to the defendant quotes for doing some drainage works also at the new airport (the second contract). Although no written contract was then in existence, work in respect of the drainage works commenced on 21 September 1996. Mr Tsoi Shui Ning, who is the registered sole proprietor of the first plaintiff and a director and shareholder of the second plaintiff, says that before this work commenced he spoke to Mr Philip Chan, a director of the defendant, and told him that "since this was a contract involving a substantial amount of money, I would expect a written contract to be drawn up before I commenced work, and I would use the second plaintiff as a party to that contract.". Mr Cheuk Sau Ching, another director of the defendant, says that it was only after the drainage works commenced that Mr Tsoi asked that the name of the second plaintiff be used for this contract. Mr Cheuk says that Mr Tsoi represented to Mr Chan that "the first plaintiff and his partner would continue to be responsible for the proper execution of the works and the contractual obligations. By virtue of this, the defendant agreed to use the second plaintiff's name in the contract eventually to be signed between the parties.".

4. Between 21 September 1996 and 8 November 1996, the defendant prepared three draft contracts for the drainage works. All of these were in the name of the second plaintiff as sub-contractor. There is no mention in any of them, or indeed in any other document, of the alleged collateral contract. Not only is there no mention of the first plaintiff's alleged liability under the second contract at this stage, but even when trouble broke out, the defendant wrote a whole series of letters about the second contract clearly holding only the second plaintiff responsible as the sub-contractor. There is not the slightest hint in these many letters that, although the second plaintiff may have been the sub-contractor, the first plaintiff was "responsible for the proper execution of the works and the contractual obligations". Not only is that the case, but the defendant makes no attempt to explain why it did not, in these letters, at any time suggest that the first plaintiff carried this responsibility.

5. Under the first contract, the defendant does not dispute that there is an amount of $899,867.50 due to the first plaintiff. The defendant, however, asserts that it has a right of set-off and counterclaim in respect of this contract. The basis for this right is said by the defendant to be that the plaintiffs repudiated both contracts and the defendant terminated them. The defendant's difficulty here is that, throughout the extensive writings by the defendant mentioned above, the consistent assertion by it is that the second plaintiff stopped work in relation to the drainage works; that is, the second contract. There are several specific references to the second contract, both by its technical title and by its description. There are also specific references to the draft contracts, which relate only to the second contract. There is, however, not one word of complaint in the letters by the defendant about the first plaintiff's conduct in relation to the first contract. And there is no evidence from the defendant to explain this. It is quite clear that the defendant was fully aware that there were two separate contracts, with different titles and different descriptions of work. It is also clear to me, from the terms of the defendant's letters and the draft contracts, that the defendant is careful and businesslike in its writings, so the failure to mention the first contract is unlikely to be due to carelessness. And if it were due to carelessness, I would have expected the defendant to explain this.

6. Mr Chan struggled manfully to overcome the defendant's difficulty in relation to the first contract. He suggests that it would be reasonable for the defendant to seek some assurance that the "first plaintiff and his partner" would be liable under the second contract, and thus it is probable that there was such a collateral contract. I do not accept this. If it were so that "the first plaintiff and his partner" were to be liable under the second contract, why bother to use the vehicle of the second plaintiff at all? And if it were so important that "the first plaintiff and his partner" would be liable, why did the defendant not insert into the draft contracts, which it drafted, some provision to this effect? Mr Chan seeks to explain the omissions in the defendant's letters by saying that they were written "in the heat of the dispute". Quite apart from the fact that the defendant does not say this, the fact of the matter is that these letters were written over a period from 9 November to 3 December, and show every sign of being carefully considered and drafted. I have to say that Mr Chan, despite his valiant efforts, has not succeeded in convincing me that, on the first contract, the defendant has an arguable case fit for trial.

7. On the second contract, the situation is quite different. There is a clear conflict of fact relating to the alleged repudiation, and the defendant does not have the same difficulties relating to the contemporaneous documents and the probabilities to overcome. Indeed, Mr Ma, with his usual realism, recognised this. While not withdrawing his application in relation to the second contract, he demonstrated a marked lack of enthusiasm for pressing it. The defendant here, I find, has advanced an arguable case that it fit for trial.

8. In the result, I grant judgment in favour of the plaintiff in the sum of $899,867.50. As to the balance of the claim, I grant unconditional leave to defend.

9. The matter of costs has not been argued. It seems to me, however, that prima facie the first defendant has been substantially successful, and should have the costs. I make an order nisi that the defendant pay the first plaintiff's costs of the application. As for the second plaintiff, the usual order is that the costs be in the cause. I make an order nisi that the costs of the second plaintiff's application be in the cause.